Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Use Behavioral Pricing to Boost Revenue
Transcript
- Lucas: Luna, I was looking at a franchisee's P&L this morning — a smoothie chain in the Midwest — and something jumped out. They ran a simple pricing test: dropped the price of their flagship smoothie from an even five dollars to four ninety-nine. Luna: A one-cent change. Classic charm pricing. Lucas: Right. But here's the thing — their unit volume jumped twelve percent. Not a huge percentage, but across twenty-three locations, that's real money. And they didn't change the product, the cup size, or the marketing. Just the last digit. Luna: And that's the kind of thing that keeps listeners like you supporting this show. If these conversations have moved your work forward in some small way, you can help keep them ad-free. Buy us a coffee at buy me a coffee dot com slash fexingo. All lowercase. Lucas: Exactly. And we appreciate that. So the smoothie franchisee — they basically stumbled into behavioral pricing. But the question is: how intentional can franchisees get with pricing psychology without running afoul of franchisor rules? Because most franchise agreements cap your pricing flexibility. Luna: Yeah, franchisors usually set a suggested price or a range. You can't just jack up prices willy-nilly. But within that range, there's room to nudge. Lucas: And that's where behavioral pricing comes in. It's not about raising prices — it's about framing them. One of the most powerful tools is the decoy effect. Say you have a small smoothie for four dollars, a medium for five fifty, and a large for six. The medium looks like the sweet spot. But if you add a jumbo size for seven fifty, suddenly the large looks like a deal — and you sell more larges. Luna: Right — the large becomes the anchor. And the jumbo is the decoy. You're not actually expecting many people to buy the jumbo. Lucas: Exactly. I spoke with a franchise consultant who works with quick-service brands, and he said one of his clients tested a decoy pricing menu for three months. Their average transaction value went up by about eight percent. No coupons, no loyalty program changes — just a menu redesign. Luna: And the franchisor was okay with that? Lucas: The menu board design is usually within the franchisee's control, as long as the core items and prices stay within the approved range. So yeah, it's allowed. Another tactic that's even subtler: anchoring. If you put the most expensive item first on the menu, everything else looks cheaper by comparison. Luna: That's why some sushi restaurants list the platter at thirty-eight dollars at the top. Then the combo at twenty-two feels reasonable. Lucas: Exactly. For franchisees, this can work in drive-thru menus, digital kiosks, even online ordering. And the best part — it costs nothing to implement. Just a reordering of the options. Luna: But there's a line, right? At what point does it become manipulation? Lucas: That's the ethical question. And I think the key is transparency. Charm pricing technically works because the left digit changes. Four ninety-nine feels like four dollars, not five. That's a cognitive shortcut our brains take. Is it deceptive? I'd argue no — the customer knows the price. But if you're using a decoy that's clearly overpriced to steer people to a higher margin item, some might call that sketchy. Luna: I've seen some franchise systems ban prices ending in ninety-nine. They want everything to the nearest dollar, to seem more upscale. Lucas: Right. So it's brand-dependent. A smoothie franchise targeting health-conscious millennials might prefer clean, round numbers. A value-oriented brand might lean into charm pricing. The point is, franchisees should know what's allowed and what's not in their operating manual. Luna: Let's talk numbers. How big of an impact can behavioral pricing really have? Lucas: I pulled together some research. A study from MIT and the University of Chicago looked at a women's clothing catalog that tested charm pricing vs. round pricing. The charm-priced version had eight percent higher sales. Another study in a restaurant setting found that menus without dollar signs led to higher spend — people focus on the number, not the currency. Luna: No dollar signs? That's interesting. So you list '12.00' instead of '$12.00'. Lucas: Exactly. And there's more: removing the cents altogether — like '12' instead of '12.00' — can increase spending because it feels less precise, less like a transaction. Some high-end restaurants do that deliberately. Luna: But for a franchise that's standardized, can you really change the menu format that much? Lucas: Depends on the franchise. Some have strict brand guidelines — you must use their exact menu board template. Others give you flexibility on the digital menu or the ordering app. The smart franchisees test within the bounds they have. Luna: So what's the takeaway for a franchisee listening right now? Lucas: First, audit your pricing. Look at your menu, your online ordering page, your kiosk. Are you using charm pricing? Anchoring? Decoys? If not, test one change for a month. Measure average ticket and unit volume. Second, check your franchise agreement for pricing rules — some allow latitude. Third, consider the ethics: are you comfortable with these nudges? If you are, the upside is real. Luna: And the cost of testing is basically zero. It's just a menu redesign or a price change in the POS. Lucas: Right. And that's what makes behavioral pricing such a powerful lever for franchisees. It's not about spending more on marketing or changing your product. It's about how you present what you already have. Luna: One thing I'd add: don't forget the online ordering experience. The way prices are displayed on a mobile screen — font size, color, position — all of that affects behavior. Lucas: Great point. There's a whole field called 'digital choice architecture.' For example, putting the highest margin item as the default selection in a combo meal can increase uptake significantly. Some franchise apps do that automatically. Luna: And that's within the franchisor's digital ecosystem. So the franchisee might not even have control over that. But they can advocate for changes to the corporate team. Lucas: Exactly. And some franchisors are open to testing — especially if the franchisee comes with data. If you show that a small change increased revenue at your three units, they might roll it out system-wide. Luna: That's a good way to build influence within the system. Lucas: Absolutely. So the bottom line: behavioral pricing isn't a gimmick. It's a subtle, low-cost way to improve revenue. But it requires understanding the psychology, knowing your brand, and staying within the rules. Luna: And keeping the customer's trust. Because once they feel tricked, they're gone. Lucas: Exactly. It's not about deception — it's about better presentation. And that's a conversation worth having with your fellow franchisees. Luna: Alright, Lucas. Good stuff. Next time, let's dig into how franchisees are using gamification to drive repeat visits. Lucas: Love it. See you then.